Despite All of Its Efforts to Insure Everyone and Control Health Costs Things Are Getting Worse in Massachusetts

Guest Post By: 

Jeffrey Hogan

Northeast Regional Manager 

Rogers Benefit Group

Few states have done as much as Massachusetts (MA) over the last 30 years to lower healthcare costs, improve quality and outcomes and, in general, to innovate.   

Last week the MA Health Policy Commission issued its 2019 Annual Health Care Cost Trends Report documenting wins, losses, and opportunities for change. Romney Care was passed in 2006 and, in 2012, the state passed a sweeping initiative to focus on a healthcare growth target and transparent metrics for evaluating healthcare performance statewide. 

Despite significant initiatives, the state reports slippage in many metrics, including burdensome cost increases for employers and their employees. 

"A Handshake That Made Health Care History"--A Boston Globe Expose: A "Quiet Deal" Between Mass Blue Cross and Boston's Most Powerful Hospitals

In a lengthy expose entitled, "A Hand Shake That Made Health Care History," the Boston Globe details what it called a "gentleman's agreement that accelerated a health care cost crisis" in Massachusetts. The reported deal was between Partners Health Care, the state's biggest health care provider, and Massachusetts Blue Cross, the largest state insurer.

The article charges that the agreement all but kept the national health plans from gaining a foothold in the state and forced the state's other not-for-profit insurers to accept Partner's terms.

I will suggest this article, apart from its sensational reporting, may have two significant implications:

1. There will now be more pressure for Massachusetts to change the financial terms with its health care providers in order to keep the Mass Health Law afloat. The Massachusetts Health Law is coming up on its third year and its unsustainable costs are generally seen as a huge challenge for its long term viability. Getting those costs under control will have to focus on what is paid to providers more than any other issue. This may be the opening salvo on what will be more focus and pressure on what doctors and hospitals are paid in the state. The day this law was passed the die was cast that the generous payments made to powerful providers would have to be faced--sooner or later--and that day is upon them.
2. Getting doctors and hospitals onside will be the real challenge to health care reform. Health care reform in Massachusetts, and more importantly in Washington, will require payment policy that doctors and hospitals can buy into and at the same time result in sustainable costs for any new health reform plan. While hospitals are more powerful in Boston than most other markets, I would argue that this story is a study in just who really is, or can be, the most powerful player in the American health are system--it is the health care provider.
   

The recent CBO cost study underscores that it is what is being paid to health care providers that will be the real challenge to reform. If the docs and hospitals don't like the health reform plan they are politically powerful enough to kill it. If it is too generous to providers, the plan will be fiscally unsustainable.

Here is a small excerpt from the Boston Globe Story:

"Partners Healthcare was born in 1993, but its powerhouse potential didn't fully hit home until 2000. That's when the emerging giant cut a quiet deal with Blue Cross to ratchet up insurance costs across the state. Nothing in Massachusetts healthcare has been the same since.

"It was the gentleman's agreement that accelerated a health cost crisis.

"And Dr. Samuel O. Thier, chief executive of Partners HealthCare, and William C. Van Faasen, chief executive of Blue Cross Blue Shield of Massachusetts, weren't about to put it in writing.

"And so, in May 2000, the two simply shook hands on this: Van Faasen would give Partners doctors and hospitals the biggest insurance payment increase since Massachusetts General and Brigham and Women's hospitals agreed to join forces in 1993.

"In return, Thier would protect Blue Cross from Van Faasen's biggest fear: that Partners would allow other insurers to pay less. Those who helped broker the deal say Thier promised he would push for the same or bigger payment increases for everything from X-rays to brain surgery from Van Faasen's competition, ensuring that all major insurers would face tens of millions in cost increases. Blue Cross called it a "market covenant."

"The deal, never before made public, marked the beginning of a period of rapid escalation in Massachusetts insurance prices, a Spotlight Team investigation has found, as Partners repeatedly used its clout to get rate increases and other hospitals tried to keep up. Individual insurance premiums have risen 8.9 percent a year ever since the "market covenant," state figures show, more than twice the annual rise in the late 1990s.

"Both Partners and Blue Cross deny that they acted improperly in the 2000 payment negotiations or in their dealings since. Partners issued a statement saying that Thier pledged only that he would treat all insurers equally. Blue Cross executives have said that the big pay raise to Partners in 2000 was needed to offset years of low rates."

You can read the entire article here.

Likely Health Care Reform Will Not Reform the American Health Care System

Remember those Archway "Windmill Cookies?" They were a favorite when I was growing up.

Robert Pear's article in the New York Times this weekend reminded me of that treat my mother used to buy for us kids. His article also illustrated the crisis many families are facing in what looks like it will be the worst recession of our lifetimes.

Archway was a great American company--it was in business for 72 years. Great treats that were part of so many childhoods and the place a lot of people worked for most if not all of their working years. A company that took good care of its people.

Until Archway went out of business recently when its current owner--a private capital fund--shut off the financing in the face of big losses. Unfortunately another common American business story these days.

Archway had a self-insured health plan regulated under ERISA. ERISA health plans, unlike pension plans, have no funding requirements or backstop federal insurer. If the company can't fund its health benefit plan the benefits cease and the workers simply become another creditor if they have outstanding medical bills to be paid.

The employer-based ERISA health insurance system may just be about the best thing in our dysfunctional health care system. 175 million people generally have great health insurance because of it. The vast majority of employers voluntarily offer comprehensive benefits and do everything they can to cover their people--most paying 75% of the premium. You don't hear about age rating, guaranteed insurability problems, or limited benefits. Having a choice, I expect about every American would pick a typical corporate ERISA health plan over Medicare or Medicaid.

The problem is that the whole ERISA health insurance system depends upon the employer's goodwill and ability to pay the bill month to month.

With unemployment at about 8%, and likely headed to at least 10%, lots of people are being laid off.

Worse are all of the corporate insolvencies.

If the employer goes out of business there is no COBRA benefit continuation option because your ERISA plan is dead--the administrator is not on the hook to give you COBRA options or pay your outstanding bills even if it is one of the national health plans. Health plans generally pay their claims one or two months in arrears, so if you had surgery last month and the plan hasn't paid any of your self insured bills and then ceases to operate you are out of luck (you may have coverage for claims that have reached the plan's reinsurance point).

That is what is happening at Archway today.

Some advocates for health care reform use this kind of example to tell us this is a big reason we need to have a health reform bill passed in the Congress next year.

They are right--but they also may not understand that even an Obama campaign-style health reform bill will not come close to ending this problem.

For example, non-partisan health care analysts at The Lewin Group, have estimated the Obama health plan would only cover about half of the uninsured leaving 22 million still without coverage. The similar Massachusetts Health Law is providing no assistance for most families making between $52,000 and $110,000 a year toward the $10,000 to $12,000 cost of family health insurance in that state.

As I have said on this blog before, doing a halfway job on health care reform is hardly progress. Health care reform without effective cost containment is just destined to blow up. Saying we are doing access reform but leaving the system full of coverage gaps raises expectations but just gives us a more expensive and even more unaffordable system.

Stories like this are not a reason to copy the Massachusetts Health Law or even enact the Obama Health Plan. Neither will come close to giving workers health insurance security.

Only a health plan with tough cost containment, a comprehensive safety net that works from day-1, and a self sustaining means to pay for it all will solve this problem.

We don't need to do this in steps. Wyden-Bennett, as an example, gives us a self-financing comprehensive safety net that covers virtually everyone--and continues to allow for ERISA plans. Add to that some tough cost containment and we can really solve this problem.

But let's not kid ourselves that any of the plans that look to be on the table today are the answer to what the former Archway employees are going through. They are not.

Insurance Industry Reform Proposal––Little Ado About Nothing

This week the health insurance industry trade association announced that its board had approved a new policy position. The industry has agreed to guarantee the insurability of everyone if the nation passes a health insurance plan that requires everyone is covered.

That’s a no-brainer for the industry to offer and not much of a deal.

If everyone is in the insurance pool—sick and healthy alike—there is no insurability risk for insurers. Pre-existing condition limitations in today’s health insurance policies are necessary because, in our voluntary system of insurance, without them people could just decide to wait until they get sick to buy coverage.

It’s like the old argument that without such limits people could wait to buy their homeowner’s insurance until after the house burned down.

But if everyone is covered there is no reason to have these limits. All the healthy people would begin paying premiums on the same day the sick would have guaranteed access to coverage. It’s an easy quid pro quo.

The industry’s proposal glosses over the real issue—figuring out how to make health insurance affordable so that a mandate that everyone buy coverage is practical and enforceable.

All we need to do is to look to Massachusetts to see how hard this is.

Under the new Mass health law, there was to be a mandate that everyone have health insurance. But Mass was only able to afford to provide subsidies for families making less than about $60,000 a year. With the cost of a family policy—that included a $2,000 deductible—often between $10,000 and $13,000 a year the state had to back off on the mandate. It was simply unrealistic to force most middle-class families to pay such high costs.

See The Connector's monthly premium and affordability chart here.

To enforce an individual mandate to buy health insurance any successful reform program would likely have to cover the 75% of premiums most employer-programs cover in order to make insurance reasonably affordable for most of the middle-class.

So, the health insurance industry is saying that if we cover everyone—and therefore eliminate their underwriting risk—they’d be happy to take 45 million new customers at retail.

How magnanimous!

Non-partisan estimates of the Obama campaign’s health reform plan have concluded that even his program likely wouldn’t cut the number of those uninsured by more than half—similar to the Massachusetts health plan’s success.

Since Senator Kennedy and his allies are getting ready to introduce a plan similar to the Obama health plan, and Massachusetts plan, falling short of universal coverage at least for many years, I can only conclude the health insurance industry’s offer is non-binding.

High Costs for the Massachusetts Health Law--Sustainability is Now the Question

The Center for Studying Health System Change has just released a study examining the state of the important health reform law in Massachusetts.

As one of the co-author's put it, "Improving access to heath care coverage has been a clear emphasis of the reform, but little has been done to address rapidly rising health care costs, raising questions about the longer-term viability of the reform."

I can tell you that from my experiences in Mass, employer health care trend is running in the 10% range--well above the national average and clearly something unsustainable in this or any other economic climate.

From the study's summary:

"Passage of health reform legislation in Massachusetts required significant bipartisan compromise and buy in among key stakeholders, including employers. However, findings from a recent follow-up study by the Center for Studying Health System Change (HSC) suggest two important developments may threaten employer support as the reform plays out. First, improved access to the nongroup—or individual—insurance market, the availability of state-subsidized coverage, and the costs of increased employee take up of employer-sponsored coverage and rising premiums potentially weaken employers’ motivation and ability to provide coverage. Second, employer frustration appears to be growing as the state increases employer responsibilities. While the number of uninsured people has declined significantly, the high cost of the reform has prompted the state to seek additional financial support from stakeholders, including employers. Improving access to health care coverage has been a clear emphasis of the reform, but little has been done to address escalating health care costs. Yet, both must be addressed, otherwise long-term viability of Massachusetts’ coverage initiative is questionable."

You can access the entire document here.

With the Massachusetts health care law looking so similar to the Obama health plan, just how Massachusetts is doing will be critical to the national health care debate.

My own conclusion has always been that the Massachusetts health care law will turn out to be an incomplete result for an unsustainable cost. Earlier post.

The Cost of the Massachusetts Health Insurance Law is "Less Than Expected"

That was the conclusion in a recent New York Times editorial, not to mention the growing spin coming out of Massachusetts, regarding the state's new health plan.

As I have said before on this blog:

• Massachusetts finally took a first big step in health care reform--something no one else has been able to do in Washington, DC or elsewhere and that is to be commended.
• The Massachusetts Health Insurance Law would appear to have solved the uninsured problem in that state for two-thirds of the people who were previously uninsured--a big part of the growth in the insured amounts to a significant expansion of the state's Medicaid program.
• But the Massachusetts Health Insurance Law did not deal with health care costs head-on and we shouldn't kid ourselves that this plan is sustainable in its current form. Recent legislative claims to deal with costs by ending free meals for docs from drug companies and the like are hardly serious efforts at cost containment.
  

In an earlier post I called the Massachusetts health reform program an incomplete result for an unsustainable cost.

Beyond the controversy for just how much this plan will cost in the second full year--most defenders say $869 million even though the Governor has already told Wall Street it could well be more like $1.1 billion--there are two things that bother my about the Mass health plan's costs:

1. The cost trend rate for both Commonwealth Choice and Commonwealth Care is at least 10% per year--well above the state's ability to sustain. In the good years one can expect a state's economy to grow 5% and this trend rate is twice that.
2. The plan is unaffordable to those in the middle--those with too much income for full or significant premium subsidies and too little to really be able to afford to pay on your own.

On that second point, I have posted the state agency's (The Connector's) own affordability chart for families. The state uses this chart to tell families which of them are exempt from the state's mandate to buy health insurance because the policies offered by the program are by their definition (as well as by common sense) unaffordable.

I know the political season is underway and Barack Obama's health plan is pretty much the same as the Mass plan. For that reason, partisans have to spin the Mass plan as a great success or see their candidate suffer.

But look at the chart. A family making $110,000 a year, with the parents over the age of 29, would not be able to afford any of the health insurance plans offered by the program--and that's The Connector's conclusion.

The Connector's chart tells a story--the Mass health plan is unaffordable for the very people it was designed to help--those between public program eligibility and enough income to have taken care of themselves in the first place.

Until Massachusetts is ready to deal with that reality head-on the Massachusetts Health Insurance Law is not a solution––it is an incomplete result for an unsustainable cost.

Related posts:

First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy

Comprehensive Health Care Reform and Massachusetts--Are We On Our Way To a Very Different Debate?

Comprehensive Health Care Reform and Massachusetts--Are We On Our Way To a Very Different Debate?

The Massachusetts health care reform law appears on its way to:

• Covering two-thirds of those who did not have health insurance on the day it was enacted--about 400,000 people by the end of 2009.
• Covering most of those who were uninsured in households with incomes below 300% of the federal poverty level--below which the plan pays all or most health insurance premiums.
• Offering health insurance plans to middle-income people that are still largely unaffordable for those families making less than $110,000 a year––people for whom the state has generally canceled the individual mandate that they must buy coverage.
• Racking up costs well above what was first estimated. The plan looks to be coming in 38% higher than originally estimated for its first year and the Governor is now estimating second year costs 50% higher than the original estimate––from $725 million to $1.1 billion for the 2008-2009 fiscal year.
• Developing an annual cost trend for the program's insurance programs, Commonwealth Care and Commonwealth Choice, in the 10% to 15% range.

So, lots more people, particularly lower-income residents, are covered but the program's costs are unsustainable.

Massachusetts was a bold and very difficult piece of legislation to accomplish. It has often been described as an experiment. The greatest contribution experiments make is to tell us a lot about what works and what doesn't so we can move on successfully from there.

Massachusetts policymakers will now work to improve the plan. But without a major cost containment effort--way beyond anything they are even talking about now--they won't make much progress.

Whatever happens next in Massachusetts, this plan's results, a plan that closely parallels Barack Obama and Hillary Clinton's national health reform plans, will likely now undermine both state and federal attempts to copy it. Neither the Congress or any state legislature is going to embark on a plan whose costs have quickly become so problematic for such an incomplete result.

Now before all my readers in the Bay State quickly complain I'm deriding the Massachusetts plan again, let me be clear that this is not a bad outcome. If there has been one primary frustration in the health care debate since the 1960s it's that we too often just debate things, never try anything, and never build on our successes and failures.

The Massachusetts health reform law is valuable because it tells us so much.

My primary takeaway from the Massachusetts health reform law is that attempts to incrementally deal with access first, while avoiding a major restructuring of the system to simultaneously deal with costs, will only lead to an incomplete result in improving access and costs that cannot be sustained.

What Massachusetts has accomplished in passing this law is the most any state or Congress could have done--or ever did. As I have said many times on this blog, the political leverage just hasn't been available to do the job in full. That was true in 2006 when this law was passed and it's true even today.

But in the coming months, results from the Massachusetts health care experiment are going to become well known.

While many will say, "Look at that cost mess let's forget major health care reform," I would hope more people would say it is clear we are going to have to take a more fundamental look at real health care reform that cuts across both the access and cost containment lines.

Even bolder plans, that everyone says are politically impossible today, just may take on a new life because it will be clear the Massachusetts outline isn't going to do much more than bust the budget for an incomplete result. Moving the debate to a more viable place would be a very worthwhile contribution for Massachusetts to make.

A few weeks ago, I said watch the Wyden-Bennett health care plan. It combines many of the things conservatives want--a decoupling from the employer-based system using an individual defined contribution model--with many of the things liberals want--adequate premium support for consumers and open access for everyone. The fact that the CBO rated Wyden-Bennett revenue neutral early in the game also looks pretty good in light of what's happening in Mass.

Other fresh ideas are on the table. Ezekiel Emanuel's health plan, for example, that also decouples health care from the employer, puts private health insurance in the hands of the consumer, and substitutes the many ways we pay for health care today with a single VAT tax that automatically creates a national budget for health care expenditures, has also gained lots of attention.

The National Leadership Coalition on Health has had a comprehensive plan on the table for sometime. Its bipartisan approach and many supporters from a broad cross section of the stakeholders also makes it a serious proposal that could now get more attention.

To me progress is a matter of keeping the debate moving forward toward a successful outcome by building on valuable experiences.

That, I will suggest, is what the Massachusetts experiment can now become. It is not something to be dismissed--nor is it something to defend for the sake of just defending it.

Related posts:

First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy

John McCain's Health Care Plan and the Uninsurable--There Are Better Fixes Than the Ones He's Proposed

First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy

The Massachusetts health care reform plan is coming up on its first anniversary.

Its costs are now officially out of control.

Those of you who regularly read this blog know that I have been particularly critical lately of what I see as a lack of sophistication in McCain's market-based health insurance proposals.

But with this news, Obama will have some big health care policy questions of his own to answer.

The 2006 Massachusetts Health Insurance Law is looking to be little more than an expensive expansion of Medicaid and that does not bode well for Barack Obama who has used the Massachusetts health reform law as the template for much of his own health care reform plan––as did all major Democratic candidates including Hillary Clinton.

The good news is that the plan, which began on July 1, 2007, has covered 340,000 people who were not insured a year ago––out of around 600,000 when the program started.

Almost all of those people have incomes below 300% of the federal poverty level and are eligible for full or substantial government subsidies to pay for their new health insurance.

The state has seen a gain of only 18,000 Massachusetts residents with incomes above 300% of the poverty level in the Commonwealth Choice plan. That's because it costs $7,000 - 12,000 a year for a family of four to buy the baseline health plan that includes a $2,000 single/$4,000 family deductible before most benefits are available. A family of four with an income of at least $61,000 (300% of the federal poverty level) would not qualify for a subsidy.

Commonwealth Care, the program covering uninsured workers under 300% of poverty, and available at little or no cost to residents, had 176,000 new enrollees as of May 1st and is projected to grow to 255,000 by July of next year--many more than the 136,000 that were estimated for the first year when the law was passed.

It is a good thing that there are 340,000 fewer uninsured in Massachusetts than there were a a year ago and Mass appears on its way to covering about 400,000 of the 600,000 that were uninsured when the program began.

But the Massachusetts Health Insurance Law is doing almost nothing for the middleclass because people can't afford the premiums––leading the state to also back-off on the individual mandate for these people. For example, almost all families would need an income of at least $110,000 a year in order for the mandate to apply to them.

So, Obama is right––you can't enforce an individual health insurance mandate if the coverage isn't affordable.

But that is about the only thing Senator Obama can be happy about when it comes to the state health reform plan that looks a lot like his plan for national reform.

With little or no cost containment in the program, the cost of Massachusetts Health Insurance Law really is out of control.

The cost for the program in its first year––July 1, 2007 to July 1, 2008––was first estimated to come in at $472 million when the bill was passed in 2006. However, that assumed there would be 136,000 low-income residents in Commonwealth Care. Instead, the state now projects that there will be 180,000 in the plan by the end of the fiscal year on June 30th driving first year costs up by 38% to $650 million.

When the law was passed in the spring of 2006, it was estimated that the second year’s costs––2008 to 2009––would increase to $725 million as the enrollment ramped up.

This past March, Governor Patrick provided an updated estimate of $869 million for next year––fiscal year 2008 to 2009––saying enrollment was higher than expected.

Just a month later, in April, the Governor revised that estimate upward by an additional $100 million to $969 million.

Now, in May, in a statement to bond rating agencies, the Governor has estimated that the fiscal year 2008-2009 costs will be more like $1.1 billion––a 50% increase over the original estimate from less than two years ago!

These costs may themselves be understated because health insurers are saying they are losing money on the program and are charging insufficient premiums that will ultimately have to rise. The Commonwealth Care insurers (100% to 300% of poverty) originally asked for a 15% increase for next year and settled at 10%.

The Commonwealth Choice insurers (over 300% of poverty and also available to small groups) are seeing a 10% trend rate and are being pressured to limit their increases to 5%--which they will do with more benefit reductions and cost sharing making these plans even more unaffordable for the benefits they provide.

It is clear that the Massachusetts Health Insurance Law is not sustainable for the state--and wouldn't be sustainable for the nation.

Until policymakers are ready to have a serious discussion about cost containment, health care reform is an unrealistic objective.

Prior posts on the Mass Health Care Plan from March 2007:
The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

The Massachusets Health Plan's Inability to Offer Affordable Health Insurance Premiums Will Stall-Out Other State's Efforts in Health Reform

People Who Say Insurance Regulation Creates More Uninsured Are Missing the Forest for the Trees

The health insurance trade association, AHIP, just released a new study on the impact of state health insurance reforms on the market and argues that the "unintended consequences" of these reforms hasn't been good.

Here is an excerpt from their release:

“This report offers important lessons. It demonstrates that insurance reforms without universal access drives up health care costs for consumers and encourages individuals who have health insurance to drop insurance and take the financial risk of being uninsured,' said Karen Ignagni, President and CEO of AHIP.

"Guarantee issue requires insurers to sell an individual health insurance policy without regard to a person’s health and community rating requires that all consumers pay the same or similar premiums without regard to age or gender. According to the report, these initiatives have the potential to cause individuals to wait until they have health problems to buy insurance. This could cause premiums to increase for all policyholders, increasing the likelihood that lower-risk individuals leave the market, which could lead to further rate increases. If this continues, the pool or market could essentially collapse or shrink to include only the high risk population.

“While these reform goals were laudable, they frequently had unintended consequences that disrupted the individual marketplace,' said Leigh Wachenheim, FSA, MAAA, Principal and Consulting Actuary at Milliman, Inc.

"Overall, the report found that states that implemented guarantee issue and community rating saw a rise in insurance premiums, a reduction of individual insurance enrollment, and an exodus of health insurers from the individual insurance market. In addition, the report found no significant decrease in the uninsured population in states that implemented these initiatives, often a stated goal of legislators."

The report is very thorough and worth a read.

But I have to say I think it misses the forest for the trees.

As far as it goes the authors are right. Before health insurance reform in the mid-1990s, it was the carriers that were "selecting against" consumers. That is, "cherry picking" the best risks and discouraging everyone else through underwriting limitations or pricing.

After the reforms, the insurers had to basically take all comers under terms that vary by state but are generally good for the consumer.

So, with underwriting reforms, the balance of power in the market shifted--from the insurer to the consumer. As a result, consumers often wait to buy health insurance until they need it--now it was the insurer that's on the bad side of the deal. The authors are right to point out that has been problematic for the individual insurance market.

So, what should we do? Go back to the old days of carriers "cherry-picking"?

More often, health policy reformers are suggesting that we now need to mandate that everyone be in the pool. That way neither the insurer or the consumer has a chance to "select against" the other or "cherry pick."

That has a logic to it and it has become the big issue in California where the governor and the legislature are trying to find common ground on a major state reform. It also led to the individual mandate in the new Massachusetts health insurance law.

However, I will suggest that in our focus on the individual health insurance market we are missing the obvious in the parallel employer market. The employer market is an insurance system that is voluntary, community rated, and has little or no adverse selection.

Every worker is an individual that has the option of joining the pool or not. Every employer group is a mini health insurance market impacted by the same variables that impact the individual health insurance market.

No employer I know of mandates that everyone participate--employer systems are voluntary. Everyone pays the same price (very few plans have any age rating), and "adverse selection" and "cherry picking" are terms we never hear.

Why?

Cost.

Employers typically pay 75% of the cost of health insurance. When a consumer is presented with a good health plan that costs them a relatively small contribution, more then enough of them buy it giving the plan a good "spread of risk" and that makes each employer pool work very well.

Here is the employer lesson: Make the cost affordable and adverse selection isn't an issue.

If the employee doesn't take the low cost employer insurance when it is offered, they have to pass "evidence of insurability" if they want coverage later.

This focus on the "unintended consequences" of state insurance regulation, and whether we need an individual mandate (which is not working in Massachusetts because the coverage is still unaffordable), misses the real problem--people don't buy if they can't afford it.

No health reform proposal will work--in Massachusetts or California or advanced by the libertarian notion that insurance market deregulation is the way to go--unless the insurance package has a price working families can reasonably afford!

The forest--cost. Not the trees--underwriting rules!

Earlier post: California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance

A Comprehensive and Independent Progress Report on the Massachusetts Health Plan

The Center for Studying Health System Change has issued a comprehensive report on the progress of the Massachusetts health reform plan.

Anyone interested in the plan's progress will find this must reading.

From their overview:

As Massachusetts' landmark effort to reach nearly universal health coverage continues, affordability of coverage remains a key concern for individuals and small employers, according to a study released today by the Center for Studying Health System Change (HSC).

"Despite reforms of the individual and small-group health insurance markets, including development of new insurance products, concerns remain about the affordability of coverage and the ability to stem rising health care costs," said Paul B. Ginsburg, Ph.D., president of HSC, a nonpartisan policy research organization funded primarily by the Robert Wood Johnson Foundation (RWJF).

Funded by RWJF, the study's findings are detailed in a new HSC Issue Brief—Massachusetts Health Reform: Employers, Lower-Wage Workers and Universal Coverage—available here. The study was based on interviews with about 25 market observers in January 2007, including representatives of employer groups, state agencies, health plans, providers, advocates and other health care leaders knowledgeable about the reform. HSC's Community Tracking Study site visit to Boston in June 2007 provided additional perspectives on the reform.

Massachusetts Expected to Further Backpedal on its Individual Mandate

The Boston Globe is reporting that the Massachusetts legislature "will probably make changes" to the new health care law that could well include capping what a person has to pay for health insurance at 10% before the individual mandate law can be enforced.

Presumably, this would mean a family with a household income of $50,000 per year would have to pay no more than $5,000. I fear that is still too high a number for a family of three, for example, who would not qualify for a state subsidy.

Let me first say that I continue to applaud Massachusetts for at least trying to deal with this health care issue and that I believe the "Connector" is doing all it can with the cards it has been dealt.

But what the discussion in the Mass legislature does point to is something I have been talking about for months: Massachusetts will not be able to implement their new health care law to anywhere near the point they wanted because they have not adequately dealt with the fundamental underlying problem--the cost of health care.

My earlier post: The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

"Government Subsidies That halve Premiums Would Cut Number of Uninsured by 3%"--No Surprise There But it Was the Wrong Question

That's the headline on a story regarding a Rand study that says giving people subsidies won't do much to decrease the number of those uninsured.

But here's the problem with that study: Paying for half the cost of health insurance that averages more than $11,000 for a family in the U.S. still makes health insurance prohibitively expensive for all but the well off.

As I posted yesterday, voluntary health plans that are successful, like employer plans, Medicare Part D, and Medicare Part B pay 75% of the cost of coverage bringing the cost into line with what people can afford and get great participation.

Asking people if they can afford half of something like $11,000 was a dumb premise for a study in the first place.

All the folks at Rand needed to do was to go look at their own company health plan. My bet is that Rand pays about 75% of the costs for its employees and has more than 75% of its workers enrolled--and probably 95% of its workers that don't have coverage through a spouse.

New Tool Kit: Massachusetts Health Reform

Ed Howard and his team at the non-partisan Alliance for Health Reform here in Washington have done another of their great jobs in putting together a resource for anyone interested in the Massachusetts health reform plan.

From their overview:

"Starting July 1, every adult in Massachusetts is required to have health coverage (except for 60,000 people exempted by the state). To help you understand the state's pace-setting near-universal coverage plan and its implications, the Alliance for Health Reform has compiled a toolkit with links to representative articles and documents from across the ideological spectrum."

You can download it from their site.

Why Does Health Insurance Cost So Much in New England?

I guess the easy answer is because health care itself costs so much in New England.

As I travel around the country, I continue to hear that plan sponsors and insurers are all frustrated by the comparatively high health care (and insurance) costs in New England. For example, according to CMS, health care spending for Massachusetts residents exceed the national average by more than $1,500, or 33% in 2004.

So, it is no surprise that health insurance costs more in Massachusetts--a 2006 health insurance industry survey found that the cost of small employer health insurance was 26% higher in Massachusetts than in the rest of the country.

A more in-depth discussion of why health care costs are so much higher in New England has been offered by one of the leading health plans in the region--Harvard Pilgrim.

They have created a “white paper”and have made it available. It might be expected that a health plan would provide a self-serving explanation of their market but I think they have given us a lot of useful and “down the middle” information.

They have also provided a list of the most commonly used "tools" for managing health care costs and quality.

There are regional differences in our health care system but all parts of the country suffer with the same challenges to one degree or another. Wherever you live, this is a good primer on why costs are as high as they are and what plan managers are doing about it.

I recommend it.

You can find it on their website.

About a third of the way down this webpage you will see, “High Cost of Health Care White Paper.” Click on that and the PDF will download.

The Massachusetts Health Plan--Even the Uninsured Deserve Choices

The publisher of Health Market Survey returns with comments on what he believes is the fatal flaw in the new Massachusetts health plan:

The Danger In The Massachusetts Health Plan
by Bill Boyles

Reputable and well-meaning people continue to applaud the Massachusetts health plan as a flawed but solid first start on covering the uninsured. A guest New York Times columnist last week fell into the trap (May 10). But this is a dangerous attitude which actually postpones the day we will have a scalable, national solutions that will actually work.

Almost everybody who knows health financing (versus academic theory) now knows that the Massachusetts health plan will fail. The name of the game is timing: how long can we stretch out the myth that this might work to get beyond the next election or until the public forgets.

The big goof is the one that is the most fixable. The idea of a single benefit design applied to a large uninsured population has never worked, and never will work. You can’t force Americans to buy health insurance they can’t afford. Instead a real plan will give the uninsured lots of benefit options – preferably dozens of options. Sure some people will pick the lowest premium with the least benefits – that’s their choice. I have no problem with creating a standard benefits package for prevention benefits only that is mandated because the impact on premiums is so small it is worth it to almost everybody.

The fatal flaw here is the perpetual variation in purchasing power across the uninsured population, something never mentioned by true believers. Purchasing power for medical care involves personal tradeoffs that are life-changing in the case of people with very low disposable income. No single benefits option can possibly address this because it will always be too rich for a majority of the uninsured. No tradeoffs are possible so nobody goes into the program. If you think they will force people in, just wait until they try it.

The only way to get at this is to offer variation in benefits options that give poor people tradeoffs they can make given their own values. A single package is something that works for government actuaries and state legislators. It will never work for low-income uninsured.

Another Victory Declared in Massachusetts--The Connector Exempts 20% of Uninsured State Residents From the Requirement to Buy a Health Plan

The only place there are more victories being declared than in Iraq these days is in Massachusetts.

The Massachusetts Health Plan regulator, "The Commonwealth Connector," has issued new rules that will exempt an estimated 20% of the uninsured from a state legal requirement to purchase health insurance.

Since the health plan bids came in last month, it has been clear the prices would not make it possible for Massachusetts to be able to implement its mandate that all citizens have health insurance or pay a penalty.

Given what they are required to work with, the "The Commonwealth Health Insurance Connector Authority" has come up with a rational way to implement the mandate--such as it is.

Fundamentally, the problem they are dealing with is one of cost. Health insurance just costs too much in Massachusetts and everywhere else in our country.

Good for the "Connector" in that they have done as much as anyone could have.

Massachusetts is also being successful in expanding the number of people who will receive a full subsidy for a health insurance plan:

• "The income threshold for an individual who receives a full subsidy and does not have to pay monthly premiums for the Commonwealth Care health insurance program would increase from 100 percent of the federal poverty level ($10,210) to 150 percent ($15,315).
• "For those earning between 151 and 200 percent of the federal poverty level ($20,420), the monthly premiums for Commonwealth Care would be reduced from $40 to $35."

With these changes, Massachusetts has effectively solved the uninsured problem for people below 200% of poverty--no small accomplishment.

But let's not have any false celebrations here. The Massachusetts experience tells us that closing the uninsured gap, and covering everyone, is something that has a cost no state can afford on its own. While this is a practical solution, it is not an elegant one--or a comprehensive one.

Under the program, a family of three earning $50,000 per year will have a health insurance plan available to them but it will cost about $7,000--and that plan has a $2,000 per person deductible. Before the Connector's ruling on exemptions, that was mandatory. Now, a family making $50,000 is exempted from the mandate if it can't find a plan for less than $3,840 per year. Based upon the "Connector's" health insurance rates, they won't find one.

They are exempted from the mandate. Problem solved.

Well, not exactly. That family still doesn't have insurance and it won't. If that family could find the money, it would pay $7,000 and get a plan with a $2,000 individual deductible ($4,000 family). The plan does have some limited first dollar office visits.

A $7,000 cost for a plan with a huge upfront deductible is no great deal for this family. It is no better deal to have the state now say, "Never mind."

It's worse for older citizens in this age-rated program. A 56-year-old would pay $351 to $505 in eastern Mass for the $2,000 deductible plan. The exemption doesn't help them get insurance.

It's not always rosy for people who still find themselves under the requirement to buy a health insurance plan. For example, a couple making $41,000 a year would be expected to pay $270 per month or $3,240 per year for a plan with a $2,000 deductible--if they can find one for that price. Not a lot for health insurance but a great deal to be expected of a couple making $41,000 a year.

The lesson from Massachusetts is not that they have found a practical way to do comprehensive health care reform.

The lesson is that a state cannot do it all by themselves.

In Massachusetts, the good news is that the glass is half full--a lot of people will have coverage who didn't before particularly between 100% and 200% of the federal poverty level.

The bad news is that the glass is half empty--lot's of people have been "exempted" from the new universal health care coverage mandate but still can't afford it. And on this point, Massachusetts has hit one big brick wall--and they don't have the means to go further.

That isn't trash talking. It is the reality we all need to face when trying to understand what the Massachusetts health care reform law means to the rest of us.

You can get the full exemption scale at the Connector Website.

See my earlier posts on the Massachusetts Universal Health Plan

The Massachusets Health Plan's Inability to Offer Affordable Health Insurance Premiums Will Stall-Out Other State's Efforts in Health Reform

Now that we know Massachusetts is not going to be able to offer affordable health insurance to the middle class, we can expect to see other similar state health reform efforts stall-out.

Both California and Pennsylvania have already started down the Massachusetts health care reform road. But when state legislators find that families making $50,000 or $60,000 a year would be mandated under state law to spend $6,000 to $8,000 out of their own pockets, for plans that require a $2,000 deducible for all but a few services, they will be hard pressed to force their voters into a mandated system.

We haven't had this kind of excitement about health care reform in 15 years.

It will be a shame if Massachusetts now pours a cold bucket of water over it.

My earlier post on the high premiums in Mass: The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

For weeks we have been warning that the Massachusetts health reform plan is at a critical point. The second round of health plan bids came out no better than the first. That did nothing to alleviate concerns that Massachusetts will not be able to mandate that its citizens buy the costly coverage.

The first health plan bids averaged $380 per person per month. A family of three would have to pay about $13,000 per year at those rates and would receive no subsidy assistance if their household income exceeded $48,000 per year. That would clearly be a non-starter.

So the Massachusetts regulator––the "Connector"--appealed to Massachusetts insurers to come back with better rates.

The result was that most insurers bid between $222 and $288 per person per month (at the average age of 37) for a health plan in eastern Mass. They got the rates down by adding a whopping annual individual deductible of $2,000 ($4,000 for a family). At $250 per month, that would cost the same family of three about $8,000. Over $48,000 per year in family income, there would be no subsidy.

Since adopting a $2,000 deductible would cause the rates to drop by about 20% to 30% anyway, the reduction in the average monthly premium from $380 to $250 is really not a much better deal for Massachusetts consumers than the first bids.

One plan, the Neighborhood Health Plan, bid $156 for a plan without first dollar drug coverage and $175 per person per month with drug coverage--both have a $2,000 individual deductible. However, Neighborhood is primarily a Medicaid provider serving its clients out of a limited number of community health clinic sites that provide very limited coverage in the state. To get one of the mainstream insurers providing access to a broad range of medical providers, plan on spending the $250 monthly premium if you are the average of 37 years old. If you are over age 56, plan on spending $350 to $461 per person per month for one of the mainstream Mass health plans.

Massachusetts will not be able to implement its mandate that all citizens have health insurance at these prices.

Can you imagine going to a middle class family of three making about $50,000 a year and telling them they have to spend $8,000, or even $6000 for the Neighborhood plan, out of their already taxed budget? To boot, the plan you are requiring them to buy has an annual deducible of $2,000 per person.

Between 100% and 300% of the poverty level, a family will receive premium assistance. However, how will a family making $35,000 per year be able to pay even half of these monthly premiums toward the cost of health insurance--and still have to pay a big deductible before getting any meaningful coverage?

The short answer is that Massachusetts can not force their people to buy a health insurance plan they cannot afford and likely will not want.

In fact, I traveled to Boston yesterday for a meeting. As I was driving down the Mass Pike the local news radio station, WBZ, led a report on the new rates and big deductibles with the line, "In the Commonwealth, a health care curve ball."

That about sums up the reaction the Massachusetts political leaders can expect to get from the people this thing is intended to help.

What are the politicians going to do?

For now, they will let the new health plan go forward. There aren't any big penalties for being uninsured in the first year. So there is no downside to just let it begin and hope for a miracle.

As the more meaningful penalties appear in the second year, they either won't be enforced or they will be repealed.

Massachusetts politicians will eventually declare victory and lift the health insurance mandate on the middle class.

They will point to the Massachusetts Health Plan's success in providing access to "affordable" health insurance plans and simply encourage people to buy it. But even that could be a problem if Massachusetts leaves the new health plans "guarantee issue" and doesn't require everyone to join the pool. The participating insurers could get the worst combination of guarantee issue health insurance and adverse selection if consumers have the option of buying.

The local health plans who have been cooperating with the "Connector" could be walking into an untenable underwriting outcome if the mandate is not enforced and a smaller pool of sick people is the outcome.

When the day is done, Massachusetts will likely have only succeeded in expanding coverage for those near 100% of the poverty line--those who will receive the most comprehensive subsides.

By making it possible for more people to have insurance, Massachusetts will have made some important progress. However, the Mass plan will not be the template for national health care reform its authors had hoped for.

Instead of being a grand plan to insure virtually everyone through a more efficient market and a set of mandates, all the Massachusetts plan will turn out to be is a fancy, but modest, expansion of Medicaid.

In the end, it's all about the cost of health care.

The Massachusetts "Connector" wasn't able to get a cheaper price for health insurance because there isn't a cheaper price for health insurance.

The number of those uninsured is the symptom--and cost is the problem.

Every other health reform plan that pretends the problem is just one of access doesn't know the difference between a symptom and a problem.

Deja Vu in Massachusetts--We've Been Down this Road Before--The Massachusetts Health Care Plan and Health Care Costs

The good news is that the health policy world is full of new and exciting health care reform proposals.

The bad news is that while these plans focus on the all important access problems (the uninsured) they almost ignore the underlying problem that makes so many people uninsured in the first place--health care costs.

With the federal government (The National Health Statistics Group at CMS) projecting that we will spend 20% of GDP on health care by 2016 (from 16% today) it is clear cost is something we can not ignore.

Cost is the big elephant in the room none of these reformers seems to be ready to hit head-on. That came home last month when the Massachusetts Health Plan regulator announced that the average bids for its new plan came in at $380 per member per month—much higher than the original $200 estimate.

Even if the regulator can get the cost of their mandated plan down to $250 per month, that would mean a family of three would be expected to pay $9,000 per year. In Massachusetts, a family of three making more than three times the poverty level ($48,000 per year) is expected to pay the full cost of coverage. It is going to be very hard to implement this plan by forcing a family like this to pay almost 20% of its pre-tax income for health insurance. The regulator can get the price down by cutting benefits—but how do you help this family by putting a big deductible on the program, or otherwise cutting what they get, for their $9,000 per year?

There is this story about a Governor from Massachusetts who runs for president touting his role in passing a state universal health reform bill, when reform was stymied at the federal level. He boasts that his reform legislation will eliminate almost all of the uninsured in his state because it mandates coverage for everyone and is therefore a model for other states and the Congress to follow.

No, I am not thinking of Mitt Romney, I’m thinking about Michael Dukakis, circa 1988.

Just after Dukakis lost the presidency to George H.W. Bush, Massachusetts repealed the universal health care bill because mandating expensive health insurance coverage payers couldn’t afford made the whole system go tilt.

Sound familiar?

If Massachusetts doesn’t solve their affordability problem they are going to dump a big bucket of cold water on all of this new health care reform enthusiasm.

They will also remind us of what the cause of America's health care crisis is--it is cost.

The uninsured are just the biggest symptom.